BlackRock, the world’s largest asset manager with over $11 trillion in assets, is eyeing a new frontier — India’s growing private credit market. In a move that could shake up the financial landscape, BlackRock is in talks with Jio Financial Services Limited (JFS), the financial arm of Mukesh Ambani’s Reliance Group. The two giants are discussing forming Jio BlackRock, a 50-50 joint venture, to offer private credit to businesses across India, from established corporations to nimble startups.
“The partnership will leverage BlackRock’s deep expertise in investment and risk management along with the technology capability and deep market expertise of JFS to drive digital delivery of products,” JFS President and CEO, Hitesh Sethia said in the press release.
But what does this mean for India’s financial sector, and why is BlackRock so keen on entering the private credit space here?
The Private Credit Boom in India
Private credit, essentially loans from non-bank lenders, is becoming a big deal in India. Many businesses are looking for alternative funding sources as traditional banks tighten their lending policies due to regulatory pressure and bad debt issues. For instance, small business loan approval percentages at big banks fell from 14.2% in February 2023 to 13.8% in March, the lowest approval rate since July 2021.
Still, according to a recent EY report, India’s private credit market is projected to continue its robust growth, with investments potentially reaching $5–$10 billion by 2025, up from approximately $5.9 billion in 2022.
In particular, mid-sized companies and startups are driving this demand. “Both foreign and domestic capital flows are vital for supporting infrastructure and technology investments. Green financing and incentives for sustainable practices are essential for fostering growth in our export sector,” observed Sanjeev Krishnan, Chairperson of PwC India, in a recent discussion. These are areas where traditional banks have been more cautious about lending due to perceived risk or regulatory constraints.
In late 2023, Hitesh Sethia, President and CEO, JFS, remarked, “Jio BlackRock will be a truly transformational, customer-centric and digital-first enterprise with the vision to democratize access to financial investment solutions and deliver financial well-being to the doorstep of every Indian.”
So, why is BlackRock so interested in India’s private credit market, and why now? Well, there are several factors at play. For starters, India is one of the fastest-growing major economies in the world. According to the International Monetary Fund (IMF), India’s GDP is projected to grow by 7% in the fiscal year 2024-25 and by 6.5% in 2025-26. This is happening at a time when growth in developed markets, like the U.S. and Europe, is slowing down.
BlackRock’s CEO, Larry Fink, has been open about the company’s need to diversify and tap into new growth markets. “Global investors recognize that India is at the cutting edge of digital transformation, in large part because Reliance and Jio have built a digital and consumer ecosystem unparalleled anywhere else in the world,” Fink said in an address to shareholders at RIL’s 46th annual general meeting in August. The partnership with Jio allows BlackRock to pair its global expertise with Jio’s deep understanding of the Indian market.
Additionally, India has experienced significant growth in entrepreneurship. As of August 2023, there were 83 unicorns, and by October 2023, this number had surpassed 100. Many of these businesses need more flexible financing options as they grow, and that’s exactly where private credit can step in. BlackRock’s interest in this space makes sense, as it allows it to cater to an underserved market while capitalizing on India’s economic growth.
Hurdles in the Indian Market
While the opportunity is enormous, India’s private credit market isn’t without its challenges. For one, the regulatory environment for non-bank lenders is still evolving. While the government has been encouraging alternative forms of credit, there is still some uncertainty about how these lenders will be regulated moving forward.
The Reserve Bank of India (RBI) has cautioned that the swift growth of private credit, coupled with its opaque nature and interconnectedness with banks and non-banking financial companies (NBFCs), poses systemic risks, pointing at potential risks to financial stability due to limited regulation.
RBI Governor Shaktikanta Das observed during his address at the 90th High-Level Conference organized by the Reserve Bank of India in New Delhi earlier this month that, “Private credit markets have expanded rapidly with limited regulation. They pose significant risks to financial stability, particularly since they have not been stress-tested in a downturn.”
Notably, the RBI barred four NBFCs from issuing new loans due to violations like exorbitant pricing and significant mark-ups over funding costs.
Currency risk is another challenge. The Indian rupee has historically been volatile, which could affect the profitability of foreign investments in private credit. In 2023, the Indian rupee remained relatively stable against the U.S. dollar, with a depreciation of approximately 0.29%, according to data from the Reserve Bank of India (RBI). For foreign investors like BlackRock, this kind of currency fluctuation can eat into returns, especially when dealing with long-term loans.
That being said, BlackRock is no stranger to navigating currency risk. The company has decades of experience in managing currency fluctuations and has the tools to hedge these risks effectively.
“Over the past five years, thousands of clients on behalf of millions of individuals have entrusted BlackRock with managing over $1.9 trillion in net new assets. Thousands also use our technology […] Years of organic growth, alongside the long-term growth of the capital markets, underpin our $10 trillion of client assets, which grew by over $1.4 trillion in 2023,” Larry Fink noted earlier this year. “Our active investment insights, expertise, and strong investment performance similarly differentiate BlackRock in the market.”
Impact on India’s Financial Landscape
If this joint venture between BlackRock and Jio Financial takes off, it could momentously alter the dynamics of India’s financial landscape. By providing more flexible funding options, it could help bridge the credit gap that many Indian businesses, especially SMEs, face. A 2023 study by the World Bank estimated that India’s credit gap for SMEs alone stands at $380 billion, highlighting the massive need for alternative financing solutions.
Dr. Raghuram Rajan, former Governor of the Reserve Bank of India, has long advocated for greater diversity in India’s financial ecosystem. In a keynote address, Rajan said, “Financial inclusion is not just about opening bank accounts; it’s about enabling access to credit, insurance, and other financial services that empower individuals and businesses to contribute to economic growth.”
Moreover, private credit ventures like this one could help India reduce its reliance on traditional bank lending. Currently, banks account for a significant portion of business lending in India. According to a CRIF High Mark report from March 2022, commercial lending made up around 49.5% of the total lending market. Diversifying the sources of credit could make the financial system more resilient to economic shocks, as businesses will have more options when it comes to securing funding.
One of the most exciting aspects of this venture is its potential to foster entrepreneurship in India. In 2023, India experienced a decline in new tech startup formations with approximately 489 startups launched, representing a 25% decrease from the previous year. Despite this downturn, India continues to hold its position as the third-largest technology startup hub globally.
Private credit, on the one hand, has emerged as a bedrock alternative for startups seeking funding. In the first half of 2023, private credit investments in India reached $5.1 billion across 63 deals, indicating a growing reliance on this funding source.
Vani Kola, managing director of Kalaari Capital, one of India’s leading venture capital firms, emphasized the persistent challenge of capital access for Indian startups. In a discussion, she noted, “Access to capital remains a major hurdle for Indian startups. Private credit can offer a much-needed lifeline, especially for companies that are not yet profitable but have strong growth potential.”
Additionally, this joint venture could contribute to India’s broader economic goals. The Indian government has set an ambitious target of becoming a $5 trillion economy by 2025; however, current projections indicate that this goal may be achieved between 2026 and 2028. To achieve this, businesses need access to more credit to invest in new technologies, expand their operations, and hire more workers. BlackRock and Jio Financial’s partnership could play a timely and determinative role in making that vision a reality.
A New Era for Indian Finance?
All in all, BlackRock’s discussions with Jio Financial could mark the beginning of a new era for India’s financial landscape. This joint venture could help unlock big-time growth opportunities across multiple sectors, from technology to infrastructure, by offering private credit to businesses of all sizes.
Regardless, the road ahead won’t be without its challenges. Regulatory uncertainty and currency risk remain potential hurdles, but with BlackRock’s global expertise and Jio Financial’s local know-how, this partnership seems well-equipped to maneuver the complexities of the Indian market fairly successfully.
Yet, only time will tell whether this venture will live up to its potential, but one thing is indismissable, and that is, BlackRock’s move into India’s private credit market is a bet on the future of the country’s economy — and it’s a bet worth watching.
Author: Richardson Chinonyerem
